At this moment, the most serous threat to the global economy undoubtedly is a prolonged recession. To speed recovery while avoiding to worsen household balance sheet and fiscal and external balance, the US has no other option but to boost exports. This means that the US has to reduce its current account deficit. China is by far America’s largest trade surplus country. While rejecting the scapegoating by American politicians who blame China for their own failure, China should address America’s legitimate concern about China’s imbalances. More importantly, the rebalancing of the Chinese economy is not only in the interest of the rest of the world, but also in the interest of China itself.
Is Mercantilism Doomed to fail? China, Germany, and Japan and The Exhaustion of Debtor Countries
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